Gov. Ralph Northam: Make earned income tax credit fully refundable

Gov. Ralph Northam will ask legislators to give low- and moderate-income Virginians a tax break to share the windfall Virginia’s state coffers are getting from last year’s federal tax cuts. Northam said he’ll ask the General Assembly to make Virginia’s earned income tax credit fully refundable.

Gov. Ralph Northam will ask legislators to give low- and moderate-income Virginians a tax break to share the windfall Virginia’s state coffers are getting from last year’s federal tax cuts. Northam said he’ll ask the General Assembly to make Virginia’s earned income tax credit fully refundable.

Gov. Ralph Northam will ask legislators to give low- and moderate-income Virginians a tax break to share the windfall Virginia’s state coffers are getting from last year’s federal tax cuts.

Northam said he’ll ask the General Assembly to make Virginia’s earned income tax credit fully refundable.

Currently, it is used to cut or completely offset a taxpayer’s bill — but if that bill is less than the credit, the taxpayer doesn’t get that difference.

Northam said his aim is to spread the benefit from what he called imbalanced federal tax cuts that gave the biggest breaks to wealthy individuals and corporations. Because of a mismatch between the new federal standard deduction and the state’s much smaller one, those federal cuts are also generating a windfall of hundreds of millions of dollars for Virginia.

“I want to do everything I can to help working families and middle-class families,” Northam said.

He said the impact would probably amount to several hundred dollars for a typical family entitled to the credit.

The amount involved depends on taxpayers’ income and the number of children they have.

The cost to the state would probably be about $250 million, he said. That amounts to about 0.4 percent of the state’s current $57 billion-a-year operating budget — but that’s before a hefty bump in revenue.

The federal cuts mean Virginia is on track to collect hundreds of millions of dollars a year. The reason is that Congress raised the standard deduction and state law says taxpayers who file federal taxes that way can’t itemize deductions on state taxes, on which the standard deductions now stand at just one-quarter the federal level.

In Virginia, the maximum credit this year will range from about $104 for a taxpayer with no children to $1,286 for those with three or more children.

It is limited to couples with no children whose income is below $20,950 and to families with three or more children with incomes below $54,884. For single filers, the income cut-offs are lower.

With the credit, a single parent with one child, working a full-time minimum-wage job would have his or her $415 tax bill completely offset. If Northam’s proposal had been in effect that year, that taxpayer would have also received a refund of about $175, a Daily Press analysis suggests.

A married couple with three children and income last year at the federal poverty line of $25,270 would have received a refund of about $660 if the credit had been fully refundable then.

In 24 of the 29 states that have an earned income tax credit program, the credit is fully refundable, Secretary of Finance Aubrey Layne said.

About two thirds of the 600,000 Virginians entitled to the credit don’t receive the full benefit because the taxes they owe are less than the credit they are entitled to receive, Northam said.

Northam is to present more details when he meets with the Senate Finance and House Appropriations committees next week, Layne said.

“The governor wanted to make sure that there was some equality and some balance as to who was participating in the tax cuts,” Layne said.

State Majority Leader Thomas K. “Tommy” Norment Jr., R-James City County, said Northam's surprise request was "an altruistic proposal that must be considered based upon empirical financial data."

He said legislators would need to know more about the precise impact of Northam's proposal on the state budget.

“Of course, I’m willing to listen to the governor and see the details of his proposal in the context of the entire budget, but at first blush I don’t see taking away the ability of the middle class to itemize as an equitable proposal,” said House Appropriations Committee chairman Chris Jones, R-Suffolk.

“I’m not sure it’s fair to Virginia taxpayers who want to deduct their real estate taxes or mortgage interest payments,” he said.

Speaker of the House Kirk Cox wants broad-based tax relief, spokesman Parker Slaybaugh said, noting that unless the General Assembly changes current tax law, Virginians who opt for the higher federal standard deduction, but who could save money if they could itemize instead of using the low state standard deduction will end up paying more in state taxes.

Del. Marcia Price, D-Newport News, said Northam’s idea could help a lot of struggling taxpayers and families.

“For my district, this sounds awesome,” she said. “It’s a state-level way to address the atrocious federal tax plan. It shows Virginia is going to be the adult in the room.”

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